Case Background
On October 31,
2017, Florida Power & Light Company (FPL or the Company) filed a Petition
for Approval to Transfer the Martin-Riviera Lateral Pipeline to Florida
Southeast Connection, LLC (FSC) and Implement Associated Rate Adjustments (FPL
Petition). Attached to the FPL Petition were declarations and attachments from
FPL witnesses Robert E. Barrett, Jr., Renae B. Deaton, and Sam A. Forrest.
On December 22, 2017, the President of the
United States signed into law the Tax Cuts and Jobs Act (Public Law No. 115-97)
(New Tax Law), which became effective January 1, 2018. The New Tax Law
provided, among other things, for the reduction in federal income tax rates
from 35 percent to 21 percent.
On February 14, 2018, FPL filed an Amended
Petition for Approval to Transfer the Martin- Riviera Lateral Pipeline to
Florida Southeast Connection, LLC and Implement Associated Rate Adjustments
(Amended Petition). In its Amended Petition, FPL recalculated the data from its
original pleading to conform with lower federal income tax rates, and updated
the declarations and attachments.
The pipeline and the related equipment at
issue in this proceeding is owned and operated by FPL, and stretches roughly 38
miles between 2 natural gas-burning generating stations in Florida. The 20”
diameter natural gas pipeline originates at the Martin Next Generation Clean Energy
Center (Martin Plant) located in Martin County, Florida, and terminates at the
Riviera Beach Clean Energy Center (Riviera Plant) in Palm Beach County,
Florida. The Martin-Riviera lateral pipeline entered commercial service on
April 1, 2014, and is solely dedicated to providing natural gas to the Riviera
Plant. The associated revenue requirements for the Martin-Riviera lateral
pipeline are currently being recovered through FPL’s base rates.
FSC is a FERC-regulated natural gas company
that owns and operates a 126-mile interstate natural gas pipeline network in
Florida. The Houston, Texas-based company is a wholly-owned subsidiary of
NextEra Energy, Inc., and the proposed transfer would essentially extend FSC’s
current pipeline network from Osceola County, Florida, to the Riviera Plant in
Palm Beach County, Florida.
By the original and amended petitions,
the Company is implementing Paragraph 17 of the comprehensive Stipulation and
Settlement Agreement that resolved the Company’s 2016 rate case. The Company seeks Commission approval to do
the following:
1.
Transfer ownership of the pipeline assets and related
equipment from FPL to FSC; and
2.
Implement base and cost recovery factor adjustments stated
in Paragraph 17(b) of the Stipulation and Settlement Agreement and approve the
associated tariff sheets, effective September 1, 2018.
The Commission’s jurisdiction to consider this matter
derives from the Commission’s authority to set fair and reasonable rates, found
in Section 366.05, Florida Statutes.
Discussion
of Issues
Issue 1:
Should the Commission approve FPL's Amended Petition
for approval to transfer the Martin-Riviera lateral pipeline to Florida Southeast
Connection and implement the associated rate adjustments?
Recommendation:
Yes. The Commission should
approve FPL's Amended Petition to transfer the Martin-Riviera lateral pipeline
to Florida Southeast Connection. The associated rate adjustments should become
effective with the September 2018 billing cycle, which begins on September 1,
2018. The Commission should give staff authority to administratively approve
the tariff sheets implementing the approved rate adjustments. (Barrett, Guffey,
Higgins)
Staff
Analysis:
In
early October 2016, FPL entered into a comprehensive Stipulation and Settlement
agreement with certain parties in its rate case docket, Docket No. 20160021-EI.
At that time, FPL proposed a conceptual framework for transferring the
Martin-Riviera lateral pipeline to FSC which identified four conditions that
needed to be met in order to implement the asset transfer:
1. FPL
must seek the necessary regulatory approvals that would authorize it to
transfer the pipeline asset with all related equipment and inventory to its
affiliated FERC-regulated natural gas company, FSC, upon a showing that this transfer
will result in customer savings on a cumulative present value revenue
requirement (CPVRR) basis pursuant to FPL’s negotiated contractual terms with
FSC for firm gas transportation;
2. The
Martin-Riviera pipeline assets are to be transferred at their net book value as
of the transaction date;
3. FPL
is to request approval to implement simultaneous changes to lower base rates
and adjust fuel rates to reflect the projected transportation charges; and
4. FPL
is to implement the base rate adjustment as a percentage reduction in base
rates for every rate class.
FPL contends that it has met
these conditions, and requests the Commission acknowledge September 1, 2018, as
the effective date for all purposes.
Purchase and Sale
Agreements
In his original
and amended declarations, witness Forrest explained that in addition to the
principle sales agreement between FPL and FSC, a number of associated
agreements were needed related to the provision of firm natural gas transportation
service. The
principle sales agreement was signed and executed on October 27, 2017. An Amendment
to this agreement was signed on February 9, 2018, setting the net book value
and purchase price at $167,415,732.
Showing of CPVRR Cost
Savings
Under the terms of the long-term natural gas
transportation and service agreement between FPL and FSC, FSC will provide firm
gas transportation service to FPL under a negotiated rate based on the maximum
daily quantity of 300,000 dekatherms, which equals the quantity of natural gas FPL
has available to it through its original ownership of the pipeline. In
Attachment REB-1, witness Barrett provided an annualized summary of the CPVRR
analysis FPL performed, which shows Net Customer Savings of $4.4 million, based
on using a natural gas transportation and service agreement with a total term
of 40-years (2018-2057).
The 40-year term is based on an initial 24-year term for the contract, followed
by three successive 5-year extensions. In its Response to Staff’s First Data
Request, the Company stated:
A term of 24 years was chosen so that the FPL
contract with the Florida Southeast Connection (FSC) pipeline for gas
transportation on the Riviera Lateral would sync up with FPL’s existing
contract for gas transportation on FSC’s existing pipeline from the central
Florida hub to the Martin Plant. The term of FPL’s existing central Florida hub
to Martin Plant agreement with FSC is 25 years effective July 1, 2017. If the
Riviera Lateral transfer is effective on July 1, 2018, both of these contracts
would have identical remaining terms. In addition, both contracts include the
right for FPL to exercise up to three successive five year extensions resulting
in the possibility a total of 40 years for the existing contract and 39 years
for the Riviera Lateral contract.
In another response, FPL stated that the 40-year term is
consistent with the current useful life of the divested pipeline asset.
As reflected in Attachment REB-1, the estimated
depreciation expense (savings) of approximately $65 million on a CPVRR basis,
or approximately $160 million on a nominal basis, is assumed to be generated by
transferring the Martin-Riviera Lateral Pipeline. Staff verified that these
amounts were appropriately calculated using currently-approved depreciation
rates.[4] The
Company’s current depreciation rates were ordered as part of its 2016 Stipulation
and Settlement Agreement.
The projected depreciation expense includes amounts related to both the
Martin-Riviera Lateral, and a relatively small amount of forecasted capital
expenditures in support of the pipeline.
Rate Impacts for
Customers and Notification
In her original and amended declarations,
witness Deaton explained that simultaneous rate changes will impact customer
bills for the period September through December 2018. As noted previously, FPL
is currently recovering the revenue requirements for the Martin-Riviera
pipeline lateral through the Company’s base rates. Upon approval of the FPL
Petition, the Company will no longer own this asset, and the lower revenue
requirement will be reflected as a $0.22 per month reduction to the Base Charge
component of the bill for a residential customer using 1,000 kilowatt-hours of
electricity. This reduction is coupled with an elevated Fuel Cost Recovery
charge of $0.20, which reflects the incremental amount of cost recovery
necessary for FPL to recoup the cost of the natural gas transportation and
service agreement it entered into with FSC, as shown in Column 6 of Table 1-1. No
other billing components change, and the net difference is shown as a reduction
of $0.02/month, as illustrated in Table 1-1 below:
Table 1-1
FPL Typical 1,000-kWh Residential
Customer Bill Comparison
for the period July-December, 2018
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
|
Component
|
Current
April 2018
|
Proposed
July-August
2018
|
Net Difference
|
Proposed
September-December
2018
|
Net Difference
|
|
Base Charge
|
$67.10
|
$67.10
|
$0.00
|
$66.88
|
($0.22)
|
|
Fuel Cost Recovery
|
$22.73
|
$22.73
|
$0.00
|
$22.93
|
$0.20
|
|
Energy Conservation Cost Recovery
|
$1.53
|
$1.53
|
$0.00
|
$1.53
|
$0.00
|
|
Capacity Cost Recovery
|
$2.57
|
$2.34
|
($0.23)
|
$2.34
|
$0.00
|
|
Environmental Cost Recovery
|
$1.58
|
$1.22
|
($0.36)
|
$1.22
|
$0.00
|
|
Storm Restoration Surcharge
|
$1.38
|
$1.48
|
$0.10
|
$1.48
|
$0.00
|
|
Interim Storm Restoration Surcharge
|
$0.00
|
$0.00
|
$0.00
|
$0.00
|
$0.00
|
|
Subtotal
|
$96.89
|
$96.40
|
($0.49)
|
$96.38
|
($0.02)
|
|
Gross Receipts Tax
|
$2.48
|
$2.47
|
(0.01)
|
$2.47
|
$0.00
|
|
Totals
|
$99.37
|
$98.87
|
($0.50)
|
$98.85
|
($0.02)
|
Source: Attachment RDB-5, Page 1 of 1, filed
February 14, 2018.
In FPL’s Response to Staff’s
Fourth Data Request, the Company stated that it initially notified customers
with bill inserts regarding this matter at about the time the petition was
filed. The Company stated that:
. . . [as] is
standard for all petitions that result in a change to customer bills, FPL will
include a very short bill message on all customer bills 30 days in advance of
the rates taking effect, and will provide updated rates schedules on its
website (www.FPL.com/rates) at the same
time that will reflect all rate changes taking effect the following month.
Physical restrictions on bill
inserts limit the amount of detail that can be included in such notifications,
but FPL’s customers can access detailed billing information from links on the
Company’s website.
Summary and Conclusion
As part of its consideration of
the 2016 Stipulation and Settlement Agreement, the Commission evaluated and
approved the conceptual framework for the transfer and simultaneous rate
impacts described above. Staff has reviewed FPL’s original and amended petitions,
the original and amended declarations and attachments, and FPL’s responses to
Commission staff’s four sets of data requests, and believes FPL’s calculations
are correct and the materials are reasonable.
Staff recommends that the
Commission approve FPL's Amended Petition to transfer the Martin-Riviera
lateral pipeline to Florida Southeast Connection. The associated rate
adjustments should become effective with the September 2018 billing cycle,
which begins on September 1, 2018. The Commission should give staff authority
to administratively approve the tariff sheets implementing the approved rate
adjustments.
Issue 2:
Should this docket be closed?
Recommendation:
This docket should be closed upon issuance of a
consummating order, unless a person whose substantial interests are affected by
the Commission’s decision files a protest within 21 days of the issuance of the
Commission’s Proposed Agency Action Order. (Brownless)
Staff Analysis:
This docket should be closed upon issuance of a
consummating order, unless a person whose substantial interests are affected by
the Commission’s decision files a protest within 21 days of the issuance of the
Commission’s Proposed Agency Action Order.
